Integrate Charitable Planning into Your Estate Plan
Hypothetical Example
Joe and Paula want to sell their shore property since they are moving and will not use it anymore. The property is much more valuable than what they paid for years ago. However, their accountant shocked them with his calculation of how much they will owe in capital gains tax if they sell the property. They were planning to invest the sale proceeds to increase their retirement income, but the tax they will have to pay makes them unsure of what to do.
That is when their advisor told them about a way they can (a) sell the property, (b) pay no capital gains tax, (c) receive lifetime income from the invested sale proceeds, and (d) get a big tax deduction to top it all off.
The federal law that makes all this legal has been in the books since 1969, when the law was passed that created the Charitable Remainder Trust.
Here is how it will work for Joe and Paula:
- While the property is being made ready to go on the market, Joe and Paula’s estate attorney sets up the “Joe and Paula Charitable Remainder Trust.”
- Their attorney then drafts a deed, changing ownership of the property from Joe and Paula to their new Charitable Trust. (By the way, Joe and Paula can be the Trustees of their Charitable Remainder Trust.)
- A qualified appraiser or an experienced realtor gives Joe and Paula a property valuation report.
- The property is then advertised, the right buyer is found, and at settlement, the sale price is paid into Joe and Paula’s Charitable Trust.
- Joe and Paula’s financial advisors will manage the investment of the sale proceeds. The Charitable Remainder Trust document will state how Joe and Paula will be paid from their Charitable Trust. That can be a fixed percentage, a proportion of the income, or some other method that works for Joe and Paula, and which satisfies the legal requirements for this type of trust.
- The income will continue for the rest of Joe and Paula’s lifetime (in some cases, it may continue into the next generation for a specific length of time).
- The tax on their estate is reduced because there is no inheritance tax on the assets held in the Charitable Trust.
- After Joe and Paula are deceased, or at a later specific time, the Charitable Trust ends, and its remaining assets go to the charity or charities chosen by Joe and Paula.
Consider a homeowner who owns a rental property that has appreciated significantly over the years. Rather than selling the property outright and facing a large capital gains tax, the owner decides to donate it to a Charitable Remainder Trust (CRT).
Before the transfer takes place, the homeowner engages Valiant Appraisal Services to complete a qualified appraisal. The appraisal establishes the property’s reasonable value as of the date of contribution (let us say $650,000, for example). By comparison, the county’s tax assessment valued the property at $480,000, and an online estimate pegged it at $720,000. If the owner had relied on the tax assessment, they would have underreported the deduction and lost out on more than $170,000 of charitable value. If they had relied on the inflated online estimate, the deduction could have been challenged by the IRS, putting the gift and its tax benefits at risk.
With the appraisal in hand, HighPoint Law Offices, P.C. structures the CRT and drafts the necessary legal documents. The arrangement allows the homeowner to receive an income stream from the trust during their lifetime, while also securing a charitable deduction based on the supported $650,000 reasonable value. Upon the donor’s passing, the remaining trust assets will pass to the chosen charitable organization.
In this scenario, the appraisal serves as the objective backbone of the plan, while the legal team ensures the trust is properly established and administered. Together, the process demonstrates how charitable intent, tax efficiency, and long-term income planning can align through real estate gifting.
Strategy Tips & Best Practices
When real estate is part of a charitable gift, the quality of the valuation matters as much as the timing. Choosing a credible, timely appraisal prepared by a qualified appraiser helps ensure the deduction is properly supported and the gift proceeds without avoidable challenges.
From a valuation standpoint, best practices include:
- Engage early. Involve an appraiser at the same time as you are coordinating with attorneys or tax professionals to avoid last-minute timing issues.
- Prioritize credibility. Collaborate with an appraiser who holds recognized credentials, regularly prepares appraisals for charitable contributions, and can demonstrate experience with IRS and trustee requirements.
- Maintain a paper trail. Keep copies of the appraisal report, Form 8283, and all supporting documentation together. A clear record reduces the risk of questions later.
- Avoid shortcuts. Broker price opinions, tax assessments, or informal estimates are not substitutes for a qualified appraisal and may put the deduction at risk.
When these practices are followed, donors and their advisors gain confidence that the value of the real estate gift is well-supported and respected by all parties involved.
Final Thoughts
Donors must make sure the desired charities are still in force and meeting all IRS requirements. They should also evaluate the charity’s work and how efficiently the charity manages its funds. They can download the charity’s annual reports to the IRS to get specific financial information and history.
If they make a large charitable gift, they may purchase life insurance, payable to their children, equal to the donated assets. When designing their Charitable Trust, they should work with an attorney who is very familiar with charitable techniques, who will ask and answer all the important questions, help the clients understand how their charitable trust will work, calculate the financial results of the charitable trust, and, in general, help the clients decide what their best plan will be.
Take the next step today. Stay compliant and avoid IRS penalties by scheduling a certified appraisal at valiantappraisals.com.
For experienced legal guidance you can trust, contact us at Highpointlawoffices.com and start building your best plan.
End of Part 2
